Now that you have seen your business plan through rose-tinted glasses, your fingers crossed hoping the bank will accept your business pitch, there is something you might be missing, a read on this article.
Just like an interview, you must prepare by knowing the things that will be checked. When you present a business plan, banks tend to be interested in the nitty-gritty of your business.
In this article, I shall give you a guide on the things that banks always consider when analysing business plans.
- Company background
The company’s background information is the identification of that particular company. Which includes the history of incorporation, management positions, company’s business niche, investors, location, address, founders, etc.
Some other information that is relevant to give the bank background of your company will include the mission and visions.
Is your business close to liquidation? If it’s a new venture, what is the current financial standpoint question?
After learning the company background, banks are always first driven to your financial situation. After all, finances come first. You want a loan and the bank wants its interests or shares.
Of course, different banks and even online credit services have their ways of determining the financial positions of companies.
For organisation let’s split finances into three major categories;
When banks are reviewing your credit application they will look at your current account balances.
Your account balance should reflect that you are not on the verge of losing your business and that is why you are seeking credit.
An account comparison will also look at the outstanding debts as compared to the current capital in place.
Even with debts, how has your company been able to manage and save money? Have you been on time to repay outstanding creditors?
- Income and revenue
Net income and revenue are the cash in. Nonetheless, they are two different things. Revenue is the total sales made from a business while income is the profit.
Say you have a business that generates a revenue of £100,000 a year but when you take out all the expenses you end up with £20,000 a year. The latter is the income while the former is the revenue.
What matters is not the exact numbers in both income and revenue but what exists as the profit margin ratio.
The higher the profit margin ratio the better your chances of securing credit.
- Cash flow
Cash flow is the movement of money in and out of the company.
Your cash flow can either be positive or negative. Positive cash flow means that despite more money moving out of the company what is generated is much higher done outgoing.
Banks and credit lenders are going to need your cash flow statement to analyse whether or not your business is heading in the right direction.
- Viability of the plan
The bank already knows what your business is and all the necessary financial information. The next step is to analyse the viability of your business plan.
So you have tabled that the quarter a million pounds you need will be used primarily for worldwide marketing and advertising.
But does it make sense though? Of course not however much marketing is important for a business it cannot contribute to 100% of the profit. Some of the money may have to go to better the product.
It is, therefore, crucial to making sense out of your application.
Banks want to know that credit sought is going to be used in something that will generate enough money to repay the credit as well as make a profit because they are trying to reduce the risks of lending money.
Table the business idea, pitch the idea and show the bank that credit will go into good use.
- Revenue projections
Now, say the bank decides to lend you the money, what are the revenue projections. Will all the money be channelled to repaying other debts or to expound the venture?
Ask yourself, by a year or 2, will the company be at a better financial position than it was before the credit was sought?
If you cannot provide such projections banks are less likely to treat your application as of importance.
Furnish the reasons why you think there shall be positive revenue projections over a certain period.
To make the best out of your business plan, look deep into the internal aspects of a company because it directly influences the greater picture of the company.
Before making a funding request application make sure the four things listed above are in check.